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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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Question 51

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Katrina is a one-third partner in the KYR Partnership (calendar year-end).Katrina decides she wants to exit the partnership and receives a proportionate distribution to liquidate her partnership interest on January 1.The partnership has no liabilities and holds the following assets as of January 1: Katrina receives one-third of each of the partnership assets.She has a basis in her partnership interest of $110,000.What is the amount and character of any recognized gain or loss to Katrina? What is Katrina's basis in the distributed assets?

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Katrina does not recognize any gain or l...

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Question 52

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The SSC Partnership,a cash-method partnership,has a balance sheet that includes the following assets on December 31 of the current year: Which of SSC's assets are considered hot assets under §751(a) ?

A) Cash and accounts receivable.
B) Cash and land.
C) Accounts receivable and land.
D) Accounts receivable and inherent recapture in the equipment under §1245.

E) C) and D)
F) A) and D)

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Question 53

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A disproportionate distribution is a distribution in which the partner's share of the partnership's hot assets either increases or decreases as a result of the distribution.

Victor is a one-third partner in the VRX Partnership,with an outside basis of $156,000 on January 1.Victor sells his partnership interest to Raj on January 1 for $200,000 cash.The VRX Partnership has the following assets and no liabilities as of January 1: The equipment was purchased for $360,000 and the partnership has taken $90,000 of depreciation.The stock was purchased seven years ago.What is the amount and character of Victor's gain or loss on the sale of his partnership interest?

Which of the following is false concerning special basis adjustments under Section 754?

Tyson,a one-quarter partner in the TF Partnership,receives a proportionate distribution to liquidate his partnership interest on January 1.The distribution consists of $70,000 cash and inventory with a fair value of $40,000 (inside basis is $22,000).Tyson's outside basis is $105,000,including his $10,000 share of TF's liabilities.What is the amount and character of Tyson's recognized gain or loss? What is Tyson's basis in the distributed inventory?

Shauna is a 50 percent partner in the SH Partnership.Shauna sells one-half of her interest to Kara for $60,000 cash.Just before the sale,Shauna's basis in her entire partnership interest is $150,000,including her $60,000 share of the partnership liabilities.SH's assets on the sale date are as follows: What is the amount and character of Shauna's gain or loss on the sale?

Kathy is a 25 percent partner in the KDP Partnership and receives $120,000 cash in complete liquidation of her partnership interest.Kathy's outside basis immediately before the distribution is $160,000.KDP currently has a §754 election in effect and has no hot assets or liabilities.Which of the following statements is true?

Under which of the following circumstances will a partner recognize a loss from an operating distribution?

Randolph is a 30 percent partner in the RD Partnership.On January 1,RD distributes $15,000 cash,an investment with a fair value of $20,000 (inside basis of $10,000) ,and a parcel of land with a fair value of $10,000 (inside basis of $5,000) to Randolph in complete liquidation of his interest.RD has no liabilities at the date of the distribution.Randolph's basis in his RD Partnership interest is $48,000.What is Randolph's basis in the distributed investment and land?

Heidi and Teresa are equal partners in the HT Partnership.The partners formed the partnership seven years ago by contributing cash.Prior to any distributions,the partners each have a $50,000 basis in their partnership interests.On December 31,the partnership makes a proportionate operating distribution to Teresa of $40,000 cash and stock with a fair value of $20,000 (inside basis of $7,000).What is the amount and character of Teresa's recognized gain or loss? What is Teresa's remaining basis in HT?

Daniel acquires a 30 percent interest in the PPZ Partnership from Paolo,an existing partner,for $39,000 of cash.The PPZ Partnership has borrowed $10,000 of recourse liabilities as of the date Daniel bought the interest.What is Daniel's basis in his partnership interest?

Esther and Elizabeth are equal partners in the EE Partnership.The partners formed the partnership seven years ago by contributing cash.Prior to any distributions,the partners each have a $40,000 basis in their partnership interests,including their share of partnership liabilities.On December 31,EE Partnership repays $50,000 of debt.What is the amount and character of Esther's recognized gain or loss? What is Esther's remaining basis in EE?

Marcella has a $65,000 basis in her 50 percent partnership interest in the JM Partnership before receiving any distributions.This year JM makes a proportionate operating distribution to Marcella of $10,000 cash and inventory with an $80,000 fair value and a $40,000 basis to JM.What is Marcella's basis in the inventory and her remaining basis in JM after the distribution?

Jackson is a 30 percent partner in the JJM Partnership when he sells his entire interest to Rhonda for $112,000 cash.At the time of the sale,Jackson's basis in JJM is $64,000.JJM does not have any debt or hot assets.What is Jackson's gain or loss on the sale of his interest?

Under which of the following circumstances will a partner recognize a gain from an operating distribution?

Barry has a basis in his partnership interest of $50,000 when the partnership distributes $60,000 in cash to Barry.As a result of the distribution,Barry reduces his basis in the partnership interest to $0,has a $60,000 basis in the cash received,and recognizes a gain of $10,000 on the distribution.

Joan is a one-third partner in the PDJ Partnership.PDJ Partnership uses the proration method to allocate income and losses to partners with varying interests.On May 1,Joan sells her interest to Freddie for a cash payment of $75,000.On January 1,Joan's basis in PDJ is $57,000.PDJ generates $60,000 of ordinary income and $9,000 of tax-exempt income during the first four months of the year.PDJ has the following assets and no liabilities at the sale date: What is the amount and character of Joan's gain or loss on the sale?

A partner that receives cash in an operating distribution recognizes gain if the cash distributed exceeds the partner's outside basis in the partnership immediately before the distribution.

In the sale of a partnership interest,a selling partner will recognize ordinary income (rather than capital gain)when the partnership assets include cash and land held for five years as an investment.